"The only people opposed to this are those who want to steal the work of other people without paying for it. If you don't rip off someone's copyright, you have nothing to worry about!"

I find this kind of comment frustrating. Why should it be so difficult to differentiate a critique of, on the one hand, the concept of intellectual property and copyright law itself (the idea that a work of authorship has economic value that can be legally protected), and, on the other hand, schemes that bypass law enforcement and tell big media companies they have more power than any government to gatekeep what is on the internet?

In an attempt to broach a dialogue with the kind of person who leaves the kind of comment above, I've come up with a pedagogical tool, a quiz, to re-situate the debate on topic and hopefully to identify the actual scope of disagreement.

Please note: the following quiz assumes it is very wrong indeed to infringe someone else's copyright. One may question the wisdom of copyright itself, but that's a different debate. The exercise here hones in on how we feel questions of infringement should be decided. Is it important for copyright policing to be subject to judicial oversight, or is it better turned over to the independent discretion of the Motion Picture Association of America?

Without further pontification, here it is. Test your respect for legal process by placing yourself at one, or between two, points in the following continuum:

Point A - Believer in Traditional Judicial Process: If you feel your copyright is infringed, you have the right to go to a court and sue the infringer. If the court finds infringement, the infringer will be liable to you for damages. There's a glitch: the alleged infringer will be presumed innocent, and you will have to meet the burden of proving infringement. Even if you win, the infringer can appeal to a higher court. This process is inconvenient and expensive to you, the copyright holder. Though you may be awarded attorneys fees by the court, if your infringer is indigent, you may never recover them.

Point B - Streamline the Process and Reverse the Presumption of Innocence: It is too expensive and inconvenient to have to chase every singal infringer in federal court. There are too many of them! If you feel your copyright is infringed, you should be able to ask the Department of Justice to blacklist the offenders and take their domains away. This process should be simpler than convicting someone of a crime; you don't want the infringers to serve time, you just want to shut down their websites. And if the government mistakenly blacklists an innocent site, well, the accused can complain to the court. Point being, the burden should be on the infringers to prove they are innocent; it's not fair to keep the onus on the copyright holders.

Point C - Vigilante Justice: If you suspect your copyright is infringed, or can't really tell but are worried that a website or group of what appear to be linked sites may be, wittingly or unwittingly, linking to servers that you think may be impacting your sales or licensing programs, you can ask Comcast, Time Warner, and other ISPs to degrade the service provided to those infringers. By throttling back bandwidth, it's less likely they can infringe your content. You and the ISPs and banks cooperating with you have some incentive to not cast too broad a net, because customers accused falsely could bring complaints. This scheme takes copyright infringement policing out of the court system and into the private sector.

Point D - Vigilante Justice Combined with Privatized Sovereign Immunity: If you suspect your copyright is infringed, or can't really tell but are worried that a website or group of what appear to be linked sites may be, wittingly or unwittingly, linking to servers that you think may be impacting your sales or licensing programs, you can ask Comcast, Time Warner, and other ISPs to cut them off entirely, and you can ask banks to stop processing payments to whoever you think may be running or profiting from those sites. You need not go to court. You don't even have to lodge a complaint with the FBI or the DOJ or the local police. And you can sleep safely at night, because, not only is the onus on the person you have shut down to figure out what you have done and come after you: that person can't even come after you. You are immune from any lawsuit or claim that person might bring, even if your suspicions were false. In fact, no court in America is allowed to hear that person's complaint.

So here are my questions to the commenter, after she has taken the above quiz. We can certainly agree that Point D is out of the question, and Point C should be, too, can't we? Our difference, if we have one, may be in whether something past Point A is necessary; or, at most, whether Point B is the edge of prudence?

Does anyone really believe that any corporation asserting a copyright should be judge, jury and enforcer of that copyright?

*For example, this one in TechDirt the other day. **For example, this comment to the TechDirt piece cited.

By http://profile.typepad.com/1237764140s22740 //
October 30, 2011
in Corporatism

Having heard that a House-version of "Protect IP" was introduced last week, I made a quick check to see if this bill also contained a provision outsourcing judicial functions to private corporations.

Sure enough, it does.

Here's the relevant text, the syntax carefully preserved (I recommend you navigate slowly; keep track of the sentence structure as you go and the concept will fall into place):

"No cause of action shall lie in any Federal or State court or administrative agency against, no person may rely in any claim or cause of action against, and no liability for damages to any person shall be granted against, a service provider, payment network provider, Internet advertising service, advertiser, Internet search engine, domain name registry, or domain name registrar for . . . voluntarily blocking access to or ending financial affiliation with an Internet site, in the reasonable belief that —(1) the Internet site is . . . an Internet site dedicated to theft of U.S. property; and (2) the action is consistent with the entity’s terms of service or other contractual rights."

What is "an Internet site dedicated to theft of U.S. property?" Among other things, a site that:

"is taking, or has taken, deliberate actions to avoid confirming a high probability of the use of the U.S.-directed site to carry out acts that constitute a violation of section 501 or 1201 of title 17, United States Code . . ."

Title 17 of the United States Code has to do with copyright protection, and one of the sections in the definition of "site dedicated to theft" is a law making it illegal to "circumvent a technological measure that effectively controls access to a work protected" by copyright.

Let's summarize: if a domain registrar, a service provider, a bank, cuts off access to your site or stops processing your transactions, based on your alleged failure to "confirm" that you aren't infringing a Hollywood copyright when they suspect you of so doing, then, as long as they have magic words in their TOS, you are totally fucked.

They don't event have to sue you. Big Media can just shut you off without calling the FBI or filing a suit for copyright infringement.

And you can't sue them. That's the "No cause of action shall lie in any Federal or State court" bit. (Interesting, how bills introduced in a Republican controlled House aren't shy about preempting state law.)

The #occupation at Liberty Park in lower Manhattan has its nightly, open-to-all-comers General Assembly.

And out in the open last night, that General Assembly discussed, and then voted 280 to 17, to create a new "Spokes Council of Operations Groups and Caucuses." This explanation, posted in advance of the meeting at the NYC General Assembly site, suggests the Spokes Council will handle "decisions related to the logistical operation of Occupy Wall Street," as well as "approval of Occupy Wall Street budgets and expenditures."

I wasn't there, but, by following @DiceyTroop on Twitter, I could track the discussion minute by minute. Dicey Troop has also figured out how to work around Twitter's daily tweet limit: when he hits that wall, he tweets from @Diceytroop2.

So the processes of #OWS governance are getting more and more complicated!

I don't completely understand this development but I am confident it is worth trying to understand and intuit it represents something more legitimate than the auctioning of policy in Washington DC.

By http://profile.typepad.com/1237764140s22740 //
October 28, 2011
in Occupy

The first and only time I found myself in the same room with Senator Patty Murray in person, we were on a plane together.

Senator Murray is an important and powerful federal legislator. She is one of only two co-chairs of the special deficit reduction super committee.

On the plane, though, she was just another person flying coach.

She sat in or near an exit row, as I recall, in an aisle seat. A staffer or two were with her. Every time I made my way from my seat at 6C to the rear of the cabin, I walked past the Senator engrossed in what looked like a paperback novel. At some point during the cross-country flight, I resolved to approach her to thank her for supporting the Angel Investor Amendment. Without it, Dodd-Frank would have killed angel investing and destroyed America's startup ecosystem at its springwaters. (True, and what I rehearsed to tell her.)

Were I a public servant, I'm sure I would find it awkward to deal with strangers vectoring in, unannounced, from all corners. But the Senator on the plane was courteous and polite. And I reciprocated. After delivering my prepared remarks, I with withdrew and she went back to her book.

Incidently, Slade Gorton, a former senator, was on the same plane. I had actually struck up a longer conversation with him in a magazine kiosk at the airport, before boarding. He was stuck in a middle seat in aisle 23, poor guy.

But back to Senator Murray.

The Senator missed an enormous opportunity during a meeting of her super committee the other day. A chance to signal that the federal political system is not entirely clueless and irredeemable.

Watch the one-minute video embedded above, if you haven't already. Senator Murray doesn't appear, but that's her voice you hear, off camera. Ordering security to usher out the self-scheduled witness. Calling a recess of the committee "until we are in order."

The irony being: the witness on her way out was telling the Senator exactly how to restore order. The super committee could not possibly have heard more valuable testimony.

I share the anecdote about encountering the Senator on the plane because I want to be clear that I don't believe she is evil. I also seriously doubt she is in any danger of becoming a plutocrat any time soon (plutocrats don't fly commercial, let alone coach).

I don't even think that what the Senator did, in her own mind, was impolite. I imagine she was acting according to the decorum she finds necessary to show respect to those who had been invited to be heard. According to a code she was honoring, she did the right thing.

But in terms of leadership, she missed the flight.

Imagine that Senator Murray had instead interrupted the self-scheduled witness this way:

"Excuse me, Ms., could you please state your name for the record? Security! Please find a chair for this witness. Mr. Elmendorf, I apologize, but would you make room at your table and share your microphone. The committee is very interested in what this witness has to say."

Poltico reports that, while the super committee "has met more frequently in secret than publicly and has rejected calls to disclose its donors and post its documents online," high paid lobbyists "aren’t sweating it. K Streeters with deep ties to supercommittee members and congressional leadership say senior staffers have given them readouts from closed-door committee meetings." (Thanks to Donny Shaw for this post that links to the Politico article.)

Here's how Senator Murray failed to seize the moment: she didn't assume that a citizen with something to say had as much right to be in the room, as much right to testify, as much right to be heard, as lobbyists earning $30,000 to $50,000 per month (figures from the Politico story).

By http://profile.typepad.com/1237764140s22740 //
October 27, 2011
in Crowdfunding

"Crowdfunding" is a concept for crowd sourcing the seed financing needs of a brand new venture. Part of the energy of the idea is that capital can be raised from many people in small chunks, kinda like how Romotive is doing using Kickstarter.

But, today, the people contributing the cash are not "investors," not really: Kickstarter prohibits you from selling stock in the venture for which you are raising the money. Not because that isn't what what everyone actually wishes was happening. People do wish they were buying interests in the venture in exchange for their money. The impediment - the only reason people raising money this way are doing so by issuing prizes for t-shirts instead of stock - is the law.

And thus the crowdfunding bill in Congress, HR 2930, introduced by Representative Patrick McHenry. It would create a federal regulatory exemption to permit money to be raised, legally, in small chunks by a wide variety of investors.

There's a niche for crowdfunding. If angels fund where VCs fear to tread, well, sometimes angels want to see proof of concept or a prototype or something more than a powerpoint deck, too. Crowdfunding could address that space. I won't call it a "pre-angel" space because angels, some of 'em, cover it already, depending . . . But a very, very, very early space, not without its own discipline, more in the entrepreneur's control than under the scrutiny of the diligencing, accredited investor.

I've had problems with Rep. McHenry's crowdfunding bill, in the form in which it existed prior to yesterday. That critique is documented in prior posts on this blog under the #crowdfunding tag.

But the sponsor amended his bill yesterday, and other amendments were added and improved, that make crowdfunding, the proposed federal regulatory exemption, and crowdfunding, the concept, more closely aligned.

Biggest change: crowdfunding now goes from a means to raise $5 million to a way to raise up to $1 million. That is a more properly scoped exemption. (In my view, you could take it down to $500,000 and still have it serve the use it should be serving.)

Another improvement: the concept of the crowdfunding platform, as an intermediary, is now acknowledged in the bill. This is a huge improvement, and an necessary one. For crowdfunding to work, viable platforms with good reputations will need to develop. Ideally, these platforms will set standards for companies and for documentation of the investments. Ideally, all will be paperless and will not require lawyers.

An added protection: the "bad actor" disqualifications, introduced into Rule 506 of Regulation D by Section 926 of Dodd-Frank last year (currently in rulemaking with the SEC), are now pulled into the crowdfunding exemption. The effect is to say, if you are a known fraudster, you can't be part of this exemption.

Preview of coming attractions: It's not evident in the record of the amendments that were approved yesterday, but the bill's sponsor, Rep. McHenry, and Rep. Perlmutter of Colorado, had an exchange about halfway into the hearing in which they agreed to work out language that would address state oversight, or preservation of existing state authority, in some fashion. Given that Rep. Perlmutter withdrew a proposed amendment that would have stricken the bill's section preempting state law, it may be reasonable to assume that the compromise language will privilege the federal crowdfunding exemption over state attempts to impose rules to frustrate it. Sounds like there is an understanding that this language will be worked into the bill before it reaches the House floor.

Kudos to the House Financial Services Committee for putting their work up on the Web the same day everything was approved. Unfortunately, you have to piece the various amendments together to get a look at the fully integrated text of HR 2930, as approved by the committee. That I have done for my own edification; you can find it here. My text is not official but should do until the committee or Rep. McHenry update us with a new, official version of his bill.

Pictures are screenshots from the archived webcast of yesterday's House Financial Services Committee meeting.

By http://profile.typepad.com/1237764140s22740 //
October 26, 2011
in Crowdfunding

Last week I asked other securities lawyers I know if they would represent any issuer (that's securities lawyer talk for "company") that proposed to raise money in reliance on a crowdfunding exemption, as currently configured in a bill that the House Financial Services Committee is considering this morning.

The smart ones all answered, "no," but I was surprised by the thoughtful analysis thrown in regarding the cost to a startup represented by each incremental shareholder.

Retorting to my observation that it could be mighty challenging for startup lawyers to keep legal fees within Fred Wilson's $5,000 challenge, were the seed financing conducted under a crowdfunding exemption, rather than Rule 506, Brian Myers told me, "I would recommend budgeting $5000 just for investor relations logistics. $10 per investor for mailing and admin work is not much." And that's just getting the shareholders on board. "That would be low just for the secretary’s time plus photocopies, large envelope and postage -- just for getting signatures," Brian added.

Another lawyer insists that the company doing the crowdfunding should consider "the total cost of administration associated with each shareholder they add - and $10k in my opinion does not cover it." He's talking about carrying that shareholder with you until a liquidity event. "[O]ver the life of a company, you will likely spend that much on accounting and legal issues for such holder (requests for transfer, shareholder communications and notices, random inquiries, liquidity matters, etc.)."

It all argues for doing crowdfunding without lawyers, without paralegals, without secretaries, without postage, without paper. Instead of negotiated deal terms, all terms should probably be standard and all documentation and logistics should be handled online.

By http://profile.typepad.com/1237764140s22740 //
October 25, 2011
in Founders

Two of my oldest friends, the two serial entrepreneurs I admire most, each a bona fide pioneer of the commercial Web, Dan Fine and Joe Snell, finally met last night.

I'd been looking forward to this for weeks. Among many, many things since, Dan is the Fine in Fine.com, a company that pioneered the idea that businesses might want websites. Among many, many things since, Joe is the startup specialist who, with Daren Tsui of M-Spot, founded Pantheon, a company that pioneered the idea that print newspapers might want to publish other than on paper.

The meeting was the doing of my buddy Randy Price, SVP of ArenaNet, who put Dan, Joe, Jeff Strain of Undead Labs, and me (what was I doing there?) together in a panel for the entrepreneurial law and business MBA class Randy teaches at Seattle University.

How Dan and Joe have not crossed paths or how I have failed to bring them together in the years since Web 1.0, I'm not sure. I guess we've been busy.

They made up for lost time and started comparing notes right away.

And they threaded Jeff Strain, a founder of ArenaNet, into the conversation. And then Randy started the class and the three of them threaded the students into the conversation. Life, the universe, hating working for the Man, being an entrepreneur, caring for a family . . . you have to go to an entrepreneurship class to put all those topics into a thematically integrated discussion.

Many thanks to Randy and the SU students for having us.

Dan's convinced that we haven't seen anything new in 15+ years. Everything - search, bandwidth, interface, experience - is better, but nothing is different.